Headlines

Examiner

Abolish the payroll tax

There are two main objections to scrapping the payroll tax. The first is the theoretical idea that payroll taxes are a dedicated revenue stream for Social Security. In practice, it just isn’t true. All government expenditures ultimately come from the same place. Payroll taxes help subsidize other government functions, and the government will use other tax revenue and borrowing to pay for Social Security when revenues are short.

The other objection is the massive revenue hit to the federal government. In 2010 (the last year before the recent payroll tax holiday), social insurance taxes raised $865 billion in revenue, according to the Congressional Budget Office. But there are a number of ways to recoup that revenue. As stated above, eliminating the payroll tax would make it easier to get rid of a lot of credits, loopholes and deductions. Also, if lower-income Americans aren’t paying payroll taxes, they can pay a bit more in income taxes. This would also deal with a conservative complaint that the income tax system needs to be reformed so everybody has at least some skin in the game. Furthermore, if businesses react as expected to the tax changes by raising salaries and hiring more workers, it would expand the tax base.

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

The “payroll” tax was intended as a minor, supplemental, forced individual retirement system. You put some of your paycheck in, and get it back when you retire. Then it became a primary retirement system. Now it’s supposed to be an entitlement from the government, a government check that has no relation to the money you put into it?

BTW, when the federal income tax was first instituted about 100 years ago, in the debate that preceded that, some congressman got on the House floor and said, with all the hyperbole he could muster, that if we allowed this “1% foot in the door, then who’s to say that one day it won’t rise to 5%?”. Yes, it’s risen to 5%, and now 35%. Pretty soon we’ll send in our whole paychecks and they’ll give us back enough for our “needs”.

Yeah, well, I’ve been saying that for 20 years. Tax withholding is nothing but a compulsory savings plan for a lot of people — one that gives them back in the form of tax rebate a tiny fraction of what’s taken.

We have heard for decades from politicians on both sides that Social Security was untouchable, that is was the 3rd rail of politics. We’ve also been subjected to claims from the Democrats that the program is hugely popular and that to propose even modest reform would bring on the wrath of grandma and grandpa. We are regularly subjected to tales of desperate seniors forced to eat dog food or choose between medications and food so as to play on the sympathies of voters and prevent even modest changes to the program to extend its solvency.

We all know though that the system is unsustainable as the number of workers per retiree has plummeted since the program’s inception and will be at its lowest ratio ever as the Boomers begin retiring.

The unfunded liabilities of the system for those of us still in the work force run into the tens of trillions of dollars. It’s well past time for some changes.

I have what I believe to be a modest proposal to over time, retire the system, prove the Democrats claims about the program’s popularity to be false, and to reduce drastically the program’s unfunded liabilities.
Now of course I haven’t done all of the math but my proposal seems rational to me and has a little something for everyone.

1. Make participation in Social Security optional. This is among other things a moral issue. Why should any American be forced to participate in any government program? Are we not free citizens? Is our income not our property? Are we not largely adults responsible enough to plan for our own retirements? Participation in Social Security is government coercion.

2. Those that opt out will have to forgo all previous contributions. This will keep many, if not most, middle-age workers in the system. It will depend on their doing the analyses to determine what would be best for them financially. This also eliminates those that opt out as future liabilities.

3. Require employers to continue funding their portion of the FICA tax until all participants have passed away. Yes, we all know that the employer contribution is really an employee’s salary that he is never paid but this provision should garner some Democrat support due to the continuing program funding.

4. Ideally we’d also raise the retirement age and in a bow to fiscal reality, implement a means test so younger workers aren’t subsidizing grandma and grandpa’s vacations to Maui.

That’s it! Let’s test the Democrat’s theory on how popular Social Security is. With only 34% of those between 18 and 34 expecting to ever receive any benefits I guarantee most if not all younger workers will opt out immediately. Their investment in the system will have been low so the choice to opt out for them would be a real no-brainer? I suspect that many higher earning workers over 34 will also opt out and divert their FICA taxes to their 401ks, IRAs or even extra appending. I’m 46 and I’d opt out immediately and divert my money to my 401k.

The Democrats don’t really care about the financial well being of Americans, what they really crave is control and the ability to use Social Security as a tool to drive voting.

Let’s push ideas like this that increase our freedom of making our own life’s choices and to break the back of the Democrat party’s demagoguery.